Good day, and ladies and gentlemen, welcome to Quhuo's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the conference over to your host for today's conference call, Mr. Eric Yuan. Please go ahead..

Okay. Thank you, operator. Hello, everyone. Welcome to Quhuo's third quarter 2021 Earnings Conference Call. The company's results were released earlier today and are available on our website. On the call today are Leslie Yu, Chairman and CEO; Co-Founder, Barry Ba; and CFO, Sandra Ji.

Leslie will review business operations and the company highlights followed by Sandra, who will discuss financials and guidance. They will be available to answer your questions in the Q&A session that follows.

Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions, and relate to the events that involve known or unknown risks, uncertainties and other factors, of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance and achievements to differ materially from those in the forward-looking statements.

Further information regarding lease and other risks, uncertainties and factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of the new information, future events or otherwise, except as required under law.

With that, I will now turn the call over to our Chairman, CEO, Mr. Leslie Yu. Please go ahead, sir..

on-demand delivery, mobility and housekeeping solutions, all enjoyed continued strong demand with our top line growth, outpacing that of the industry. Now let me walk you through our key business performance in Q3. First, let's look at our biggest revenue contributor. The on-demand delivery business.

Its revenue reached RMB 1.05 billion, up 38% year-over-year, exceeding the RMB 1 billion mark for the first time. For Q3, the aggregate number of delivery orders were 159 million, up 59% year-over-year. This growth rate was clearly faster than the industry average, showing our ability to quickly gain market share.

This impressive result in our on-demand food delivery business were enabled by our strategy to aggressively penetrate into new cities and expand our service network.

By Q3, we provided our on-demand delivery services in 1,231 business circles across 87 cities nationwide, compared with 1,067 business circles across 70 cities in the same period in 2020. In addition, we expand our coverage of serving chain merchants directly, including supermarkets and chain restaurants.

This so-called new retail business, gaining the strong momentum in Q3. We believe that the COVID-19 containment measures across China served as a positive catalyst for our clients in metro areas to adopt new ways to purchase living necessities. They place orders online and get instant delivery offline.

This positions Quhuo were very well in capturing new business opportunities in this burgeoning segment, as evidenced by our community and the grocery delivery, enjoying explosive growth in Q3, with revenue up 262% year-over-year.

Furthermore, our expanded network is enabling Quhuo to sustain our leading position on business scale and service quality, while housing improved our operational efficiencies and cost structure. Moving to our Housekeeping Solutions business.

Q3 revenues increased 538% year-over-year to RMB 21 million, with a GMV of RMB 462 million [ph] We are pleased to announce that our Housekeeping Solutions has become our second largest business line.

For our Mobility business, this strategic segment continued its strong growth in Q3, with revenues reaching RMB 34.6 million up 364%, - 365% year-over-year and 35% quarter-over-quarter.

Besides shared-bike, ride hailing starting July this year, we launched our freight service for industry customers by fulfilling end-to-end intra-city and long distance transportation orders. We believe this is a very promising business with huge market potential.

All above reflected our growing brand awareness and the resulting in market share gains in this lucrative category. Let me now provide another update on our exciting multi-scenario deployment, which enables workers to have multiple jobs on our platform to optimize their overall income.

In Q3, the cumulative number of workers we engaged in 2 or more types of jobs on our platform reached about 22,700, increasing 28% quarter-over-quarter. Female workers accounted for 16% of the total group, increasing from 10% in the previous quarter.

For riders with an average monthly income of at least RMB 5,000, they represented more than 54,000 workers accounting for 51% of total group, flat with the previous quarter.

In Q3, we would like also to highlight the importance of our aggressive investment in Quhuo's technology platform, reflected by doubling of our R&D, research and development expenses from a year ago.

We believe these expenditures will enhance our competitiveness by improving operational efficiency and service quality while expanding our services to more sectors. A clear illustration of our progress on the technology front is the low out this quarter of our new Laizhenge [ph] 1platform, including our new family-oriented housekeeping services.

Our goal is to extend our world-class housekeeping service capabilities from hotels and the restaurants to directly to home and the communities. The market size of which is expanded to reach the trading R&D level.

The Laizhenge platform integrates intelligently expectation, robots and a sensors to monitor water and electricity consumption, which can effectively reduce labor cost of property management and improve efficiency and the service quality.

With the adoption of this smart system by more property management companies, we will set up service stations, near communities and fully utilize resources of workers at hotels and the property management companies within 5 kilometers of service stations.

Meanwhile, through cooperation with more property management companies, we can also mobilize our existing housekeeping workforce and our infrastructures to engage in the community housekeeping services creating a win-win solutions for all parties. Finally, let me talk about our continued efforts in driving profitability in Q3.

In spite of operating constraints from the strains of COVID-19 containment measures and with heightened competition, we were still able to achieve RMB 19 million net income result in Q3, compared with a net loss of RMB 10 million in the same period last year. Adjusted net income for Q3 was RMB 28 million.

The results reflected our commitment to sustainable profitability as we continued to advance our lucrative business model. This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra and who will discuss our financial results for the third quarter. Thank you..

Thanks, Leslie. Hello, everyone. Welcome to Quhuo's third quarter 2021. Please be reminded that all amounts quoted here will be RMB unless stated otherwise. For this quarter, our total revenues were RMB 1,105.5 million, representing an increase of 43.7% year-over-year, primarily due to the rapid growth of our major business lines.

Revenues from on-demand delivery solutions were RMB 1,047 million, representing an increase of 38% from RMB 758.8 million in the third quarter of 2020, primarily due to the increase in the number of delivery orders were fulfilled as a result of the industry growth as our continued penetration and expansion into new geographic markets.

Revenues from Mobility service solutions consisting of shared-bike maintenance, ride hailing and the freight service solutions were 34.6 million, representing an increase of from 364.5% from 7.4 million in the third quarter of 2020, primarily due to our enlarged customer base as a service scope for shared-bike maintenance solutions as the commencement of freight service solutions in July 2021.

Revenues from housekeeping and accommodation solutions were RMB 21.9 million, representing a significant increase of 538% from RMB 3.4 million in the third quarter of 2020, primarily because we enlarged our customer base for housekeeping and accommodation solutions to include hotels and the B&Bs following our acquisition of Lailai and the Chengtu Home.

Our cost of revenues were RMB 1,055.1 million representing an increase 53.2% year-over-year, primarily due to our business expansion, which resulted in increased costs, proportionate to our revenue growth as the incremental hiring expenses and higher equipment costs to expand workforce on our platform and to secure additional resources in preparation for the anticipated increased demand of our solutions and our continuous business expansion plan in the first quarter.

General and administrative expenses were RMB 56.2 million, representing a decrease of 45.6% from RMB 103.2 million in the third quarter of last year.

The decrease was primarily due to the decrease in share-based compensation expenses from RMB 72 million in the third quarter of last year to RMB 9.1 million in third quarter of this year, primarily because we incurred substantial share-based compensation expenses in the third quarter of 2020, as we satisfied the performance conditions of our share incentive awards upon completion of our initial public offering them.

Excluding share-based compensation expenses, general and administrative expenses increased by 51% year-over-year, primarily due to the increase in staff cost in line with the rapid growth of our housekeeping solutions and professional service fees and expenditures in connection with our business expansion plan.

Our research and development expenses were RMB 6.3 million representing an increase of 108.9% from RMB 3 million in the third quarter of 2020, primarily due to the incurrence of outsourcing expenses to develop a new SaaS system for our housekeeping solutions, and the increase in staff cost as we enlarged our research and the development team.

The operating loss was RMB 19.3 million compared to operating loss of RMB 24 million in the third quarter of last year. Excluding share-based compensation expenses, the adjusted operating loss was RMB 10.2 million compared to adjusted operating profit of RMB 48 million in the third quarter of 2020.

We recorded other income net of RMB 39.2 million compared to other income net of RMB 32.1 million in the third quarter of 2020, primarily due to the increase in fair value change of investments in a mutual funds.

We also recorded income tax benefit of RMB 0.8 million compared to income tax expenses of RMB 15.8 million in the third quarter of 2020, primarily due to the lower estimated annual effective tax rate for the third quarter of 2021. Net adjusted EBITDA was RMB 35.1 million compared to adjusted EBIT of RMB 85.1 million in the third quarter of 2020.

The adjusted net income was RMB 28.2 million compared to adjusted net income of RMB 61.3 million in the third quarter of 2020. For the balance sheet, as of September 30, 2021, we had cash, short-term investments and the restricted cash of RMB 257.1 million and short-term debt of RMB 140.6 million. Now move to our financial outlook for next quarter.

For the first quarter of 2021, we expect the total revenues to be in the range of RMB 1,050 million to RMB 1,150 million, representing an increase of 20.6% to 32% year-over-year. The forecast reflects our current and preliminary views on the market and its operational conditions, which is subject to change. I think this concludes our prepared remarks.

Thank you for your attention. We are now happy to take your questions. Operator, please go ahead..

Thank you. [Operator Instructions] Your first question comes from Dillon Heslin from ROTH Capital Partners. Please ask your question..

Hi, good morning, good afternoon. I hope everyone is well. Thanks for taking my questions. First, I know some of the other gig economy companies in China talked about some weakness in consumer demand from both the COVID variant of Delta and then some flooding and other macro impacts.

Did you guys see anything similar in 3Q and if so, has any of those trends normalized for 4Q?.

Hi. This is Leslie. And even though the COVID-19 containment measures across the overall China, we can see we capture the business opportunity, and we have very strong growth. So compared with our - according to our growth, we consider that the market for on-demand delivery and for housekeeping and for mobility is still very strong.

And we expect that the Q4, as indicated by Sandra in the financial outlook, we're still expanding that there will be huge demand, and we will maintain this growth, although there will be like a spring festival followed up by Q4.

So we mainly focused on the profitability driven in Q4, but we expected that the demand for the service and for the revenue growth is still strong. Thank you..

Thanks. And secondly, your gross margins were a little bit under pressure again in 3Q, down a bit more from 2Q versus what they were last year.

How much of that is one time in nature from some of the platform expenses you incurred to grow in terms of like technology and hardware? And then what sort of like a steady state forward gross margin outlook for 4Q and beyond?.

I would like to explain the reason why the gross profit is a little bit down in Q3. That is because we have recruited a lot of staff preparing for this Q4 because we are already expecting very strong growth compared with last year. Overall, it's about 80% growth compared with last year.

So for this coming winter, we need to prepare people in advance, because in this year, particularly, in the market, the labor is more - the supply of the labors compared with the last few years is relatively limited. So we have to get more people on board with us, prepared for the Q4.

And also because we are facing some extreme weather according to the forecast for this winter. So we're prepared for our winter equipment a little bit early and it's a full preparement in Q3.

That's the reason why we -- a little bit of cost has been increased in our operational cost, but it is one-off investment in the winter equipment and also in the labor recruitment cost..

And I can give you a rough picture of the first quarter gross profit margin. We expect the margin will be better than this quarter. Thank you..

Got it. That's helpful.

One more, if I may, can you sort of talk a little bit more about the multi-city deployment? What's your go-to-market strategy there? Like how do you select which city - I'm not - I'm sorry, not multi-city, multi-service, which cities get the multi-service and how do you onboard some of your workers onto that platform?.

For multiple jobs completed and also we consider a multi-scenario deployment, actually, that we - this is national-wide and strategy. And we basically will provide for our workers for multi-job opportunities.

But for these workers, possibly and this does not have this kind of skill or capability, so we have online training system and the other equipped with inside purchase. So with these two systems will help them to adapt them to the new job opportunities and help them to get the income - more income. Besides of that, we have called this screen system.

Yes, we have a screen system on Quhuo plat. This screen system will help to record and this personnel and the qualification and the skill set and the work record in the system. And we use a kind of like algorithms to help us to identify and match the people to the right jobs.

And when these people in the system being matched and we will encourage them and provide them with the training program and on some kind of encouragement and they will be better, easier and also be encouraged to work in the new job opportunities.

That's how we can keep the more workforce in our platform to have more job opportunities and increasing about 28% quarter-over-quarter..

Thank you. That’s it from me..

There are no further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect..